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Who Should Consider a Plan?

Phantom stock plans are used in public as well as private companies. Organizational structure is rarely an impediment. C Corporations, S Corporations, Limited Liability Companies (LLC) and even Partnerships can utilize phantom stock, although the plan name and terminology would change accordingly. Non-profit organizations can adopt some, but not all, of the common features of a plan.

Any size company can adopt a phantom stock plan. The key element to consider is whether the company expects to grow. Providing employees with shares in a phantom stock program rarely satisfies the business purposes unless the company owners anticipate their future company will be greater in value than their present company.

A simple exercise is to quantify the potential growth in value over a specified number of years. Then, one can consider sharing a fraction (5-15%) of that increased value with employees. Will that dollar amount, once shared, represent a compelling and meaningful value to the employees? This tool may help determine whether a company is of the right size to consider a plan. This exercise may persuade some smaller companies that the effort is not worth it. Other types of long-term plans may be more appropriate.

Other questions employers might ask include:

Do we have key employees whose contributions will be essential to the successful growth of our company?

Are we seeking greater alignment between our owners and our management team?

Are the owners willing to commit to a compensation strategy that will result in variable, long-term obligations?